Chip sector preparing for downturn amid economic slowdown

晶片產業在為經濟放緩中的衰退做準備

TSMC one of few chipmakers continuing with strong performance last quarter

TAIPEI (Taiwan News) — Chipmakers are staring at an increasingly gloomy outlook amid slumping device sales and new U.S. restrictions on chip exports and equipment to China.

According to Nikkei, recent earnings reports from some of the biggest semiconductor manufacturers reflect a slowdown across the sector. Intel reported Thursday (Oct. 28) that its third quarter revenue dropped 20%, while net income dropped 85% from a year earlier.

Intel CEO Pat Gelsinger said on an earnings call that the drop in demand was more pronounced than the company had initially forecasted and is now affecting the entire electronics supply chain, per Nikkei.

Demand for PCs has fallen after strong growth following the work from home transition during the height of the pandemic, which has been exacerbated by inflation woes and China’s economic slowdown due to its continued pursuit of zero-COVID, the report said. Shipments of smartphones dropped 10% compared to a year earlier in the last quarter, according to a U.S. research firm cited by Nikkei.

Segments that had previously dodged the slowdown, like data centers and premium smartphones, are also feeling the pinch now, according to the report. This has affected memory chip companies like Western Digital, which saw net income drop 96% year-on-year last quarter, while Samsung Electronics recorded a 49% decline in operating profit for its chip division.

The pandemic initially caught the electronics sector off guard, which led companies to get their hands on as many chips as possible. An economic slowdown now means the market has a glut of semiconductors, which is leading to inventory adjustments by electronics and tech companies, thereby dragging chip prices lower, Nikkei said.

Taiwan Semiconductor Manufacturing Co. has been one of the few chipmakers to continue its strong performance, logging an 80% increase in net profits last quarter, although the company did note that demand had dropped for its older 7nm silicon.

Global chip sales in July dropped 2% from a year earlier, representing the first decline in 32 months, Nikkei said, citing data from World Semiconductor Trade Statistics (WSTS). WSTS adjusted its growth forecast in August down 2.4% to 13.9% this year, and by half a percentage point to 4.6% in 2023. Meanwhile, U.K. research firm Omdia is forecasting a 0.2% decline in the overall chip market next year.

The recent decision by the U.S. to start requiring companies planning to export advanced chips or chipmaking equipment to China to first obtain licenses from the U.S. Commerce Department is also affecting the sector.

The chip industry serves as a good gauge of global economic health because the chipmaking process takes several months. A sudden slowdown in this sector could point to a global recession over the horizon, according to Nikkei.